Question

Suppose you are financing a project that has a total NINV of $250,000. You are going to finance with 40% debt and 60% equity. The cost of the equity is 11% and the firm has a tax rate of 21%. The WACC is 8.5%. Given this, what is the before-tax cost of debt?
a. 5% b. 9% c. 6% d. 3%
Suppose you invested in a bond three years ago. The bond pays an annual coupon of $85. When you bought it, it was selling for $965. You just calculated that your HPR on the bond is 35%. Given this, what is the current price of the bond?
a. $968.47 b. $1,047.75 c. $1,217.75 d. $1085.24
Which of the following is NOT correct concerning the CAPM?
a. It is a single factor model.
b. It says that the only risk that matters in pricing is unsystematic risk.
c. CAPM is the equation of the Security Market Line.
d. The CAPM can be used to price both individual securities and portfolios.
You are going to finance a project with common stock and coupon bonds. The common stock cost will be estimated based upon the Dividend Growth Model. The firm just paid a dividend of $2, with an estimated growth rate of 5% and a current price of $50. The coupon rate on the bonds is 8% and the YTM is 7%. The firm has a tax rate of 21%. If you use $650,000 of common equity and $500,000 of coupon bonds, what is the WACC of the project?
a. 7.6% b. 7.9% c. 8.2% d. 9.6%
A project has the following expected NCFs: Year 1: $80,000, Year 2: $70,000, Year 3: $60,000, Year 4: $50,000. If the NINV is $150,000 and the WACC is 6%, what is the NPV of the project?
a. $82,659 b. $105,631 c. $93,547 d. $77,753

Answer 1

1.